CWT refund or carry-over?
The irrevocability rule must be revisited. The business climate that led a company to decide to carry-over excess tax credits five years ago may not be the same now. Taxpayers must be given a second chance to recover their own money.
For most taxpayers, the deadline for filing the Annual income Tax returns (Aitr) was yesterday (April 15). it is at this moment that a decision to either refund or carry over the excess withholding tax credits must be made. The supreme Court in one case ruled that both options are irrevocable. But in a recent case, the sc clarified that only one of the options is irrevocable.
Once a taxpayer ticks the option “To be refunded,” is that option irrevocable? In the case of University Physicians Services Inc. (UPSI) v. CIR (GR 205955, March 7, 2018), the taxpayer ticked the said option but later carried over the same in a subsequent return. The SC ruled that once the tax credits are carried over, after electing refund, the carry-over option becomes irrevocable, and the taxpayer can no longer revert to its previous choice of refund. In other words, only the carry-over option is irrevocable and not the option to be refunded that was made earlier.
Several months later, the SC in Rhombus Energy Inc. v. CIR (GR 206362, August 1, 2018) promulgated a decision different from the UPSI case. In this case, the SC ruled that the carry-over of the prior year’s excess credits in the subsequent Quarterly ITRS will not reverse the option “To be refunded” previously made by the taxpayer in its Annual ITR. In other words, the irrevocability rule applies not only in the option to carry-over but in the option to be refunded as well.
Contrary to the pronouncement in Rhombus, a reading of the law unmistakably discloses that the irrevocability rule applies exclusively to the carry-over option. This is the current ruling of the SC in UCPB v. CIR, (GR 104687, April 24, 2023, uploaded in December 2023). According to the SC, if the intention of the lawmakers was to make such option of cash refund or tax credit also irrevocable, then they would have clearly provided so. The law does not prevent a taxpayer who originally opted for a refund or tax credit certificate from shifting to the carry-over of the excess creditable taxes to the taxable quarters of the succeeding taxable years. However, in case the taxpayer decides to shift its option to carryover, it may no longer revert to its original choice due to the irrevocability rule.
This rule is affirmed by the Ease of Paying Taxes Law (EOPT). The said law also added that in case the taxpayer chose the option to be issued TCC or refund but carried over the amount said to be refunded in the AITR filed for the succeeding year, it is a ground for denial of the claim for refund.
As discussed by Atty. Buted in her article, the BIR is given 180 days from submission of complete documents to decide a claim for CWT refund. The recently released revenue regulations clarified that if the BIR fails to decide within the 180-day period, the taxpayer has two options: 1). File a Petition for Review at the CTA; or 2). Wait for the Decision of the Commissioner of Internal Revenue on the claim for refund. If the taxpayer opted to file a Petition at the CTA, it means that it has foregone its administrative claim for refund. The CIR will no longer decide on the same.
According to the SC, the evident intent is to keep the taxpayer from flip-flopping on its options and to avoid confusion and complications as regards taxpayer’s excess tax credit. It specifically addresses the problematic situation when a taxpayer, after claiming cash refund, and during the pendency of such claim, automatically carries over the same excess CWT and applies it against its income tax liabilities.
There are many instances where taxpayers have accumulated hundreds of millions or even billions of pesos of excess CWT but they do not know how to recover it anymore. A company may be currently in a consistently losing position or its projected income tax due for many years is not enough to consume the excess tax credits that it has accumulated. Unfortunately, some taxpayers are bound by the irrevocable option it has made many years ago. The money that a taxpayer could have used for its operating expense or even to grow its business will forever remain a dead asset, that is slowly eaten by inflation. It is obviously not good for the financial health of a company and the overall economic health of the country that an excess CWT remains in a company’s books for many years.
The irrevocability rule must be revisited. The business climate that led a company to decide to carry-over excess tax credits five years ago may not be the same now. Taxpayers must be given a second chance to recover their own money.
The author is a senior partner of Du-baladad and Associates Law Offices (BDB Law) (www.bdblaw.com.ph), a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at irwin.c.nideajr@bdblaw.com.ph or call 8403-2001 local 330.